Prime Retail's Newest Outlet Outpost

Historically, outlet developers and full-price retailers kept a safe distance from each other. Outlet malls belonged on the fringe, at least 20 or 30 miles from higher-priced urban and suburban stores. That's why so many outlets were built in former cornfields just outside the city or in tourism centers off the beaten track.

Although spruced-up outlet centers are creeping closer to their full-price competitors, territorial boundaries still play an important role in the industry. "There still is this respectful distance," says Glenn D. Reschke, president and COO of Prime Retail Inc., a Baltimore-based REIT that operates 51 outlet centers in 26 states. "In the business, we call it 'sensitivity.' "

An emerging question is how to maintain that sensitivity in cyberspace, a realm where physical distance has no meaning. For example, many top manufacturers now sell full-price goods online. They promote their websites by displaying Internet addresses in advertisements and in retail stores. If manufacturers lump outlet and full-price goods together on their websites, they might lose full-price sales. If they exclude outlet goods from their Internet strategies, they might miss excellent opportunities to shed inventory.

For their part, developers of outlet malls face the challenge of figuring out how to join e-commerce without damaging sensitive relationships with manufacturers. After all, you can't build a website in a cornfield.

Exploring a new frontier Or can you? Reschke says Prime Retail may have found a way. "We're assembling all the same manufacturers together into a virtual outlet mall," he says. "The outlet website will be on the virtual fringe. Merchants will be able to separate their value-priced goods by leasing space on it."

The world's largest landlord in the outlet business, Prime Retail recently announced the launch of primeoutlets.com, a wholly owned subsidiary. Prime Retail predicts the e-commerce site will become the equivalent of Amazon.com in the $13 billion value shopping industry.

Considering Prime Retail's success in the brick-and-mortar world, that seems entirely possible. The company says its 51 outlet malls earned $3.5 billion in sales last year, drawing 120 million customer visits. According to CEO Abraham Rosenthal, 75% of the U.S. population lives within a one-hour drive of one of Prime Retail's outlet centers. The company now controls 27% of U.S. outlet space.

Online sales could be available as early as spring 2000. "Our goal is to launch the site with 15 to 30 brands," Reschke says. "Based on the reaction from consumers, it could be more."

360-degree marketing Prime Retail, which will build and maintain its tenants' sites in return for rent, is evaluating bids from several companies to build the brick-and-mortar heart of the $15 million venture: a central distribution warehouse.

Reschke says the online tenants will be required to stock and maintain "the full depth and breadth" of their merchandise in the warehouse. Following the trend toward "360-degree marketing," brick-and-mortar stores will advertise primeoutlets.com, and the site will heavily promote the 51 brick-and-mortars.

Prime Retail might face competition from Konover Property Trust's true-finds.com, a value shopping site scheduled to go online in a few months.

Turning up the volume For Prime Retail, the initiative comes at a time of increasing visibility. The company recently joined The Athena Group in a $500 million venture to develop outlets in Europe (see news item, p. 10). And last year, Prime Retail launched a major national marketing campaign, renaming its centers "Prime Outlets" and hiring actress Faith Ford, formerly of the television show "Murphy Brown," as spokeswoman.

Many will be watching to see how the move will affect the outlet industry. Prime Retail says primeoutlets.com will reach professional males, working mothers and other time-pressed groups that rarely shop at brick-and-mortar outlets.

Prime Retail also predicts its site will serve as a cross-marketing and e-commerce model. Statistics show that consumers abandon more than half of all Internet transactions, in part because poorly designed sites make online shopping a chore. Bearing that in mind, Prime Retail is working with web-development experts to make primeoutlets.com an innovative and reliable addition to cyberspace, Reschke says.

"We're trying to stay cutting edge and beyond," he says. "The more you can take care of your customers and not disappoint them, the more frequently they'll shop with you."